Transcript of a Press Briefing by the Managing Director, Mr. Horst Köhler at the Burj Al Arab Hotel
Dubai, United Arab Emirates, June 6, 2003

Opening Remarks of Mr. Ibrahim Belselah,Coordinator General of Dubai 2003

Mr. Belselah: Good Evening Ladies and Gentlemen,

Thank you very much for coming on Friday. I know it's the weekend but we really appreciate that. Tonight, we have a very important guest. We are honored that Mr. Köhler could join us from his busy schedule to come here to Dubai on a short visit. It is definitely a milestone for us that the (World Bank-IMF) Annual Meeting is taking place, for the first time, in the Arab world. And today, Mr. Köhler had an opportunity to see the facilities that we are preparing for the important meeting in September. He also had an opportunity to meet some of the officials from the UAE government, from the Ministry of Finance and the Governor of the Central Bank. I am delighted that he has found time also to discuss some of the regional issues and the agenda we are hoping for beyond the meeting. We had a very short but constructive discussion. Now, I will leave the floor to Mr. Köhler.

Mr. Köhler: Thank you, Mr. Belselah.

Ladies and Gentlemen, first I do think that I should apologize that we are here today because I know it's the weekend and I've been told just before I came here that you are waiting since some time or maybe even an hour and I apologize also for that. But let me thank you for your interest in meeting with you and I suggest that I make an introductory statement and then answer a couple of questions.

I am deeply impressed by what I have seen here in Dubai. I do think, from the facilities, that everything is nearly in the best possible shape to make the Annual Meetings of the World Bank and the IMF this fall, a success. The Dubai International Convention Centre is, in our view, technically absolutely state-of-the-art. From what I saw and heard today, it is clear that the infrastructure for our meetings is already largely in place. I wish strongly to express my appreciation and also gratitude for the exceptional efforts of the Dubai and UAE authorities for their support of this Annual Meeting of the Bretton Woods institutions, and I look really forward to returning here to Dubai in September to see the meeting taking place.

I should inform you that I came here to Dubai after a short but very intensive visit to Doha. There, I participated in a meeting of the Gulf Cooperation Council and I reported to the Ministers there how I see the global economy. I was impressed about the resolve expressed by the Ministers to take on the challenge of the current situation, and also to demonstrate that one of the answers is stronger regional cooperation. I encouraged them to go ahead with this idea.

The IMF and the World Bank work to foster international cooperation in the monetary, financial and development fields. Holding this first Annual Meetings in the Arab world, particularly Dubai, is long overdue recognition of the fact that the Middle East is an integral part of the world economy and a key player in the process of global cooperation. I will do everything to demonstrate that the IMF, with its global membership of 184 members, is attentive to this region and that we are committed to giving the region attention also in our own policy process and cooperation.

For the Middle East, and the global economy more generally, this is certainly a difficult period. However, it seems the region has weathered recent storms relatively well. We expect growth in the region to recover to about four to five percent in 2003. That said, more is achievable, and there is further need for structural change, in particular through greater diversification of the region's economies. And one strong basis for opening up to attract more investment, is also more transparency.

I can use the opportunity of this meeting with you to express my admiration to the UAE authorities about their clear resolve to go ahead, to move ahead with more transparency. They, for instance, have published the substance of our so-called Article IV `Staff Reports', which is a major step toward demonstrating that the authorities are open, and also to demonstrate transparency in their policy process.

As I said before, I also met yesterday evening with the finance ministers and central bank governors of the Gulf Cooperation Council in Doha, and I was impressed by the countries' commitment to regional cooperation. The GCC countries clearly appreciate that strengthening economic cooperation, and promoting structural reforms, are the best way to foster sustainable economic growth. Similar sentiments were reflected in discussions I had today with senior representatives of the Arab Monetary Fund, who also underscored the need for greater transparency. And we have also agreed in this meeting with Dr. al Mannai that we are going to increase the cooperation between the International Monetary Fund and the Arab Monetary Fund. I do think that we can draw on the experience of staff and management of the Arab Monetary Fund. It is our policy in the IMF to listen more carefully to the people who come from the region. This is not that we always take on what the people tell us -- we need to be candid -- but I do think that we should listen better to the people from the region in order to do a good job.

Before traveling to the region here, I attended the preparatory meetings of the Group of Eight Summit in Evian, in France. The Evian summit showed there is political will among the leaders of the G-8 and the major developing and emerging market countries to work together to address the world's problems. I was impressed by this commitment of the leaders and, as you certainly will know, the Crown Prince of Saudi Arabia was also there in Evian.

Global growth is presently weak. But I believe that the recovery will strengthen in the months ahead. I hope, and I am quite confident, that when we return here in September we shall be able to speak with more assurance about this strengthening recovery. I am confident that, working together, the international community can do a great deal to improve economic prospects.

The most important task now is to ensure that the global economy is brought back to vigorous and sustained growth. In this regard, the advanced countries, that is the U.S., Europe and Japan, have a particular responsibility to boost global growth. And last but not least, strengthening multilateral trade, through a successful conclusion of the Doha Trade Round within its allotted time frame, must play a key role in this effort to strengthen global growth.

The international community is also in the process of forming now a consensus on the rehabilitation and reconstruction of Iraq - this is now overdue. As uncertainties surrounding Iraq are addressed, I am certain the Middle East region as a whole will benefit. For its part, the IMF is prepared to help in the reconstruction and development of Iraq. This weekend, I will be sending a small staff team to Baghdad for fact finding and assessment of technical assistance needs. And the IMF concentrates on its core areas of competence -- that is how you set up a budget -a transparent integrated budget-, how you set up a monetary policy, including a central bank which runs a monetary policy, how you set up relations to the external world, a payment system and a stable currency. All this has to be reviewed and hopefully we can give some good advice for this macro-economic framework for sustained growth and recovery in Iraq.

We will also be participating fully in multilateral discussions to help organize further assistance to Iraq. And as you will know, there will be a pre-donors' meeting on the 24th of June in New York, chaired by UNDP and by the World Bank, and I hope that our fact finding mission, from the IMF, will be able to give some good input in this conference in June.

This is what I had liked to say at the outset of this meeting. Now, I am of course happy to take your questions. Thank you.

Question:You mentioned that you are sending, this week, a small team to Iraq. This mission is it authorized or not authorized yet by the powers in Iraq now, the powers that are controlling Iraq or you are coordinating with them, or is this initiative taken by you, particularly?

Mr. Köhler: It is a decision by the management, by the Managing Director of the IMF. But, it is clearly very well coordinated and prepared with the provisional coalition authority in Iraq, but also coordinated and prepared with the World Bank and the United Nations.

Question: It is a question about the GCC. We have seen, in recent months, that the dollar has fallen quite considerably against the Euro and other currencies, and going forward with the GCC planning to create a single currency. My question is : Given the fluctuations in exchange markets recently, should the GCC be looking to peg the single currency to a basket of currencies or to the U.S. dollar?

Mr. Köhler: Closer cooperation is a medium-term project. And therefore, we should not make the GCC decision about monetary union dependant on very current developments. So, when they decide on what kind of peg they should define I think our current excitement about exchange rate relations will have settled down.

I do think that there is some exaggeration in the world about the decline of the dollar. On the one hand, it is clear that with this huge current account deficit, the depreciation of the dollar should not be a surprise. It is, in a way, even wanted in order to solve this global imbalance of this huge current account deficit. On the other hand, I just feel it is premature to write off the dollar ; it seems to me that still the U.S. economy has the potential for strong growth. In my view, the U.S. economy will remain in the medium and long-run, a locomotive, an engine for growth in the global economy. Therefore, I do think we should be attentive to current developments, but we should not panic. We should not exaggerate but just we should concentrate on what we can do in this context and this is that every country, and in particular the advanced countries, should bring their houses in order. The U.S., for instance, should bring fiscal policy back on track. But more importantly for the medium-term is that Europe and Japan should be accelerating their process of structural reforms. If this happens, I am not so concerned about developments in exchange markets.

Question: Actually, Mr. Kohler, it seems that you are little bit optimistic regarding the global economy. On what grounds you are building this kind of optimism? Regarding the U.S. economy, you will see that the analysts are not that encouraged regarding the tax revision, the new tax plan. For the European economy, you will find that most of the experts are very cautious regarding the reflections of the strong Euro on the European economy. Japan, of course, you know all about Japan, they are not in their good times. So, on what grounds you are building your optimism?

Mr. Köhler: First, indeed basically, I am not pessimistic. This is based on the fact that there is stimulus in the pipeline, particularly in the U.S. -- monetary stimulus, fiscal stimulus; because of the fact that some concerns about the price of oil did not materialize; and because of the fact that, in particular in the U.S., companies, corporates have improved strongly their balance sheets. And because of the fact that cash liquidity is available and is looking for opportunities to invest. I am basically optimistic that a recovery will take place. But, we should also be realistic. It will not be a recovery which brings us back to the strongest possible growth rates we have seen, for instance, in the second half of the `90s. The recovery will be, in a way, gradual because of still some built-in weaknesses. Therefore, it is so important now that Europe and Japan do more to strengthen their growth. But we should, on the other hand, beware of pessimism.

I do believe also that technologies have still a huge, not yet exploited growth potential: new technologies, information technology, nano technology, medical technology, bio-technology. All these new areas for new products and services are, by far, not exploited. So, the potential is there, the productivity potential is there, we need confidence in the global economy and this depends a lot on the advanced countries policy and on a successful conclusion of the Doha Round.

If the leaders of the G-8 are serious about their words, they can demonstrate at the Cancun Ministerial Meeting in Mexico that there is momentum to lead the Doha Round to a successful conclusion by the end of 2004. If this will happen, I am indeed optimistic.

Question: You mentioned that there will be a kind of cooperation between the IMF and the Arab Monetary Fund. What kind of cooperation will this be?

Mr. Köhler: Well, there is already cooperation. We exchange information about countries, statistical information. The Arab Monetary Fund is participating also in financing when we have a program with an Arab country. I do think that we can even enhance this cooperation because the Arab Monetary Fund people often know more specifics about the countries in their region. I want to draw more on this. And, looking forward, also I do think we can cooperate regarding our task in the reconstruction of Iraq drawing from our very well established cooperation in organizing together training courses for people from the Arab world. We are going to intensify this training activity.

Question: You were for a long time, for three or four years, pressing on Egypt to float its currency, and now it ended up that we see that Egyptian economy is sinking actually and it is not helping the Egyptian economy, like some other states . Do you think that, on the long run, this will help the Egyptian economy and lift it up? How do you see it?

Mr. Köhler: Well, I have no doubt that more flexibility in the exchange rate regime is good for Egypt, for its growth and adjustment ability on the medium and long-term. I admit that it takes them a bit longer than we would like them to take, to make a flexible exchange rate regime really working smoothly. But, we should also admit and take into account that they need to build up the technical abilities and facilities for a smooth functioning of a flexible exchange rate. Altogether, I do think that the Egyptian authorities should think further how they can adjust more rapidly to the needs of the global economy. On one hand, they should also move to more transparency and on the second hand, give investors more assurance that there is less bureaucracy in their administration. I have no doubt that the huge potential of the Egyptian people and country will pay off at the end for all of them.

Question: About the team that is going to Iraq, is there any specific date on when they are going to leave and how long they will be staying ? And also what obstacles do you foresee in carrying out your assessment ? ".

Mr. Köhler: Well, I think that they are already traveling. They will be there, on Monday morning, in Baghdad. The obstacles are clear : there is still a very very difficult environment, including the safety environment. I am sure it will be very difficult to find data, for instance. But, we have to cope with this and I hope that this very experienced staff, which has also worked before in post conflict countries, will make due, and I have no doubt, they will make a good contribution together with others, such as the World Bank, the United Nations, the coalition forces, to help the country recover and give the people of Iraq hope and demonstrate that there is a brighter future ahead of them.

Question:My question is about Saudi Arabia. The IMF had proposed that Saudi Arabia should impose an income tax in the country and that was voted down by the Shura Council unanimously. The analysts that I spoke to, all of them seem to say that it lacks economic and social merit, what are your views on that? And what are your views on the Saudi Shura Council voting it down?.

Mr. Köhler: Well, I think this is such a specific question. I beg your pardon if I am not going to such a detail this evening.